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Risk Assets and Safe Haven Assets Push Higher Together?!
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To Investors,
Peter Lynch is one of the greatest investors to ever live. While at Fidelity Investments, he averaged a 29% return and managed the best performing mutual fund in the world. So it is noteworthy that one of his most famous quotes is “if you spend 13 minutes a year on economics, you have wasted 10 minutes.”
Pretty good one-liner, right?
The reason Lynch believed macro economics was noise is because he managed money during a time where everyone was constantly worried about monetary policy, geopolitics, and various topics outside financial markets. His strategy was simply to buy shares in great companies and wait for the companies to increase in value.
It wasn’t rocket science.
But here is the thing, the stock market has significantly changed over the last 50 years. We went from a market where ignoring macro economics increased your likelihood of success to the modern market where paying attention to macro economics is all that matters.
Let me give you an example.
Former Pimco CEO Mohammed El-Erian wrote yesterday “Forgive me for sounding like a broken record, but today’s market action is so illustrative of something I’ve been trying to convey for a while now.
The notable thing about gold today isn’t just that its price hit yet another record high, but how it has done so: Gold is surging on the same day that US stock indices have over 1%. This simultaneous climb in both a classic safe haven and risk assets is a powerful illustration that the drivers of the current gold rally are different from historical patterns.”
Safe haven assets and risk assets are both pushing higher at the same time. That isn’t supposed to happen. It violates everything an investor was taught in their Economics 101 class. So what is going on here?
Holger Zschaepitz explains the different sides of the debate:
“Despite the Nasdaq 100 hitting a new all-time high, market sentiment remains unusually split, a divide also reflected in Bitcoin’s wild swings.
Goldman Sachs sees two ways to read this: Cynics view it as a fragile equilibrium, where even a small shock could end the rally. Optimists see it as the hallmark of a healthy bull market – one that keeps climbing the proverbial wall of worry.”
So who is right? Should we be worried about the concurrent rise of risk assets and safe haven assets? Well, let’s turn back to Peter Lynch.
He once said “I’ve studied the Constitution and the Bill of Rights, and I don’t see anywhere that we have to have a recession every four years. I don’t see why you can’t have a decent environment for years and years.”
Spoken like a true optimist if you ask me.
My personal opinion on why all asset prices are going higher boils down to the macro environment. Markets are forward-looking and everyone has become convinced that the government won’t stop printing money, the national debt is go
Published on 2 weeks, 2 days ago